China’s yuan reform suggests firmer prices for base metals, which have suffered price depreciation from expected weaker demand and excess inventory. Aluminum may recover some of the 20 percent price loss in the past three months due to production cuts, and gains are also expected in copper, while prices for nickel and zinc should trade sideways in the coming week. See the following article from The Street for more on this.
China’s move of making the Yuan more flexible will help the market react positively as hopes of an economic recovery have re-emerged. Therefore, a strong investor sentiment and higher risk appetite would support base metal prices this week.
Last week, base metal prices experienced losses as factory activity growth plunged, jobless claims increased and consumer prices in May registered their worst fall in almost one and a half years. Additionally, fresh selling by traders also dragged down the prices.
This week, metal prices would also be affected by the scheduled economic data releases. Existing home sales in May are foreseen to increase to 6.15 million from 5.77 million earlier, while new-home sales are seen declining to 410,000 from 504,000. Furthermore, U.S. initial jobless claims are seen falling by almost 12,000 in the upcoming week.
Dragged down by fears of a economic slowdown in Europe and a construction downturn in China, aluminum prices declined marginally by 0.05%, to close at $1,944 per tonne at the LME contracts for 3-month delivery. The LME 3-month forward aluminum prices remain at the last week support levels of $1,858 while resistance levels changed to $2,044.
During second-quarter 2010, aluminum prices have shed almost 20% due to high competition in the production market and instability in the raw material prices. Additionally, aluminum inventories on the LME declined by 22,550 tonnes to settle at 4.47 million tonnes.
Recently, it was revealed that Alcoa(AA) along with state controlled Saudi Arabian Mining Company have started working on a $10 billion, world’s largest, fully integrated aluminum complex, which aims to be the world’s lowest-cost supplier of primary aluminum, alumina and aluminum products.
Meanwhile, analysts say that the metal’s prices have experienced enough fall to lead to significant production cuts in situations where higher costs for power in China have made it more expensive to produce aluminum.
Last week, most of the major aluminum producers followed the declining trend. Kaiser Aluminum(KALU) dropped 0.2%, while Alcoa was down 2.2%. Also, Aluminum Corporation of China(ACH) edged down marginally by 0.05%, while Alumina(AWC) gained 4.1%.
Subsequent to weak economic data from the U.S., copper prices touched a one-week low as concerns regarding demand prospects rose. The 3-month LME copper contracts closed 0.7% lower to settle at $6,435 per tonne last week. As per technical analysis, the LME 3-month forward support levels are at $6,100 while resistance is at $6,782. LME inventory levels narrowed by 1.6% to close at 457,425 tonnes. However, analysts believe that the latest price fall was overstated and a strong potential for recovery is seen ahead.
Antofagasta Minerals, a Chilean copper miner, says that a stronger Yuan is likely to boost commodities demand in the world’s top consumer — China — as it would make purchases cheaper.
During the last week, copper producer Southern Copper(SCCO) edged down marginally by 0.8%. Going against the metal price movement, Teck Resources(TCK) increased 2.8% and Freeport-McMoRan Copper & Gold(FCX) accumulated 1.5%.
The LME nickel 3-months forward increased 0.2% to $19,590 per tonne. The inventory outflow was 3,993 tonnes to total at 129,798 tonnes. As per Fibonacci principles, there is resistance at the $20,550 levels; it is foreseen to sustain below the same level and trade lower during the week. Furthermore, momentum indicator RSI is trading sideways at 0.42, indicating choppy trading sessions in the upcoming week.
During the last week, Australia’s Miitel nickel mine owner Mincor Resources revealed that the mine could be bigger than previously estimated, as there were some new explorations indicating a second nickel deposit. The mine site is now being revamped and is set to reach production rates of 4,000 to 5,000 tonnes of nickel in concentrate. The concentrate production, which is also delivered to BHP Billiton(BHP), is mainly increased to meet renewed demand from stainless steel makers.
LME 3-month forward zinc dropped 0.6% to close at $1,730 per tonne from $1,732 in the previous week. Inventories narrowed down by 900 tonnes to 618,025 tonnes. At the Shanghai exchange, zinc gained (27%) the most from the prior week while inventories were down 8%.
As per Fibonacci principles, the market is witnessing resistance at the $1,805 levels and is foreseen to trade lower for the week. Meanwhile, the support levels range between $1,708 and $1,700, indicating choppy trading sessions. RSI, the momentum indicator, is trading sideways at 0.38, suggesting sideways movement for the week.
Statistics reveal that global zinc use during the January to April 2010 period stood at 3.94 million tonnes as compared to 3.20 million tonnes in the same period a year ago. As per the Lisbon-based International Lead and Zinc study group monthly bulletin, the global zinc market was in surplus by 180,000 tonnes during January to April 2010.
This article has been republished from The Street. You can also view this article at The Street, an investment news and analysis site.